Growth potential does not justify current valuation of the off-price apparel and home fashions retailer, analysts said.
"The stock is currently trading above its historic multiples at 18x our C2015 EPS estimate and 10x C2015E EV/EBITDA. We think this is unwarranted given our below-consensus near-term estimates and our outlook for growth to decelerate over the long term," analysts said.
"Our C2014 estimate of $3.12 is 5 cents below consensus and our C2015 projection of $3.49 is 7 cents shy of expectations," analysts added.
Separately, TheStreet Ratings team rates TJX COMPANIES INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate TJX COMPANIES INC (TJX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TJX's revenue growth has slightly outpaced the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 7.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- TJX COMPANIES INC has improved earnings per share by 10.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TJX COMPANIES INC increased its bottom line by earning $2.95 versus $2.55 in the prior year. This year, the market expects an improvement in earnings ($3.17 versus $2.95).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Specialty Retail industry average. The net income increased by 7.9% when compared to the same quarter one year prior, going from $479.56 million to $517.62 million.
- Net operating cash flow has increased to $602.24 million or 13.51% when compared to the same quarter last year. Despite an increase in cash flow, TJX COMPANIES INC's average is still marginally south of the industry average growth rate of 20.78%.
- The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.71 is somewhat weak and could be cause for future problems.
- You can view the full analysis from the report here: TJX Ratings Report